how does parental leave affect fertility and return

HOW DOES PARENTAL LEAVE AFFECT FERTILITY ANDRETURN TO WORK? EVIDENCE FROM TWO NATURAL

EXPERIMENTS∗

RAFAEL LALIVE AND JOSEF ZWEIMULLER

This paper analyzes the effects of changes in the duration of paid, job-protectedparental leave on mothers’ higher-order fertility and postbirth labor market ca-reers. Identification is based on a major Austrian reform increasing the durationof parental leave from one year to two years for any child born on or after July 1,1990. We find that mothers who give birth to their first child immediately afterthe reform have more second children than prereform mothers, and that extendedparental leave significantly reduces return to work. Employment and earnings alsodecrease in the short run, but not in the long run. Fertility and work responsesvary across the population in ways suggesting that both cash transfers and jobprotection are relevant. Increasing parental leave for a future child increasesfertility strongly but leaves short-run postbirth careers relatively unaffected. Par-tially reversing the 1990 extension, a second 1996 reform improves employmentand earnings while compressing the time between births.

I. INTRODUCTION

Working parents of a newborn child have to give full attentionto their baby and their jobs. Aiming to address this double burdenfor working parents, most OECD countries offer parental-leave(PL) provisions. However, although countries agree that parentsof small children need support, the design of current PL systemsdiffers strongly across countries. The purpose of this paper is toprovide information on one key aspect of PL. We ask how PLduration affects a working mother who has just given birth toher first child. By studying the decision to give birth to a sec-ond child, we can provide information on the role of PL policy for

∗ We are grateful to Larry Katz and to four anonymous referees for their com-ments. Johann K. Brunner, Regina Riphahn, and Rainer Winkelmann and par-ticipants at seminars in Amsterdam, Basel, Frankfurt, Kobe, Rotterdam, Vienna,Zurich, SOLE 2006, ESSLE 2006, the Vienna Conference on Causal PopulationStudies, the IZA Prize Conference 2006, and the German Economic Associationmeeting of 2005 also provided valuable discussion on previous versions of thispaper. We bear the sole responsibility for all remaining errors. Beatrice Brunner,Simone Gaillard, Sandra Hanslin, and Simon Buchi provided excellent researchassistance. We are grateful for financial support by the Austrian Science Founda-tion (FWF) under the National Research Network S103, “The Austrian Center forLabor Economics and the Analysis of the Welfare State,” Subproject “PopulationEconomics.” Further financial support by the Austrian FWF (No. P15422-G05),the Swiss National Science Foundation (No. 8210-67640), and the Forschungs-Stiftung of the University of Zurich (project “Does Parental Leave Affect FertilityOutcomes?” ) is also acknowledged. [email protected]; [email protected]© 2009 by the President and Fellows of Harvard College and the Massachusetts Institute ofTechnology.The Quarterly Journal of Economics, August 2009

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higher-order births. This analysis is important for countries withfertility rates below the replacement level. Studying mothers’ re-turn to work, postbirth employment, and postbirth labor earnings,the paper provides information on how PL duration affects sub-sequent work careers of working women. This analysis allowsassessment of the extent to which extending parental leave fa-cilitates balancing work and life. Moreover, studying the effectsof parental leave on both fertility and work allows us to assesswhether institutions that shape the terms of postbirth female em-ployment spill over to fertility.

Our analysis is based on the Austrian PL system. Under Aus-trian PL rules women can stay off work and return to the same (ora similar) job at the same employer thereafter. During the leavethey receive a flat PL benefit of 340 euros per month. Interest-ingly, Austrian policymakers implemented two major reforms ofthe duration of PL—an extension of PL duration in 1990 and areduction of PL duration in 1996. Specifically, before July 1, 1990,the maximum duration of PL ended with the child’s first birthday.The 1990 reform extended PL until the child’s second birthdayfor all children born on or after July 1. The 1996 reform partiallyreversed the extension granted in 1990 by taking away the lastsix months added in 1990.

These policy changes create natural experiments that allowus to assess how changes in PL duration affect fertility decisionsof a mother who has just given birth to a newborn child. ExtendingPL duration affects this decision in two different ways. First, theprobability of a higher-order birth is potentially determined bythe PL duration for the baby that is already born. This is what wecall the current-child effect. This effect is potentially important inthe Austrian context because women who give birth no later than3.5 months after the end of a previous PL are exempt from thework requirement and can automatically renew PL eligibility forthe second child. Before the 1990 reform, mothers needed to givebirth to a new child within 15.5 months. Such a tight spacing ofchildren is both biologically difficult and not desired by many par-ents. The 1990 reform increased this period to 27.5 months, thusproviding much broader access to automatic renewal. The 1996reform reduced the automatic renewal period to 21.5 months—aspace between births that is biologically feasible and potentiallydesired. Second, the probability of a higher-order birth is alsodetermined by PL duration for the baby yet to be born. This iswhat we call the future-child effect. Because PL duration directly

PARENTAL LEAVE, FERTILITY, AND RETURN TO WORK 1365

affects the costs associated with childbearing, the future-child ef-fect is expected to increase fertility.

This paper also studies how PL rules affect postbirth labormarket careers of mothers with newborn children. The 1990 ex-tension of leave encourages a mother to stay home with her childin the second year after birth and to delay return to work sub-stantially. Future employment and labor earnings will be affectedin two ways. First, providing parents with extended PL encour-ages mothers to stay off work longer and lowers employment andlabor earnings immediately after a birth. This short-run effect ismechanical and intended by policy makers. Second, prolonged pe-riods of absence from the workplace may lead to skill depreciationand weaker labor market prospects after labor market reentry.This potential for long-run deterioration of women’s postbirth ca-reers is clearly not intended by policy.

Although family policies in many countries are designed tosupport low-income (and often nonworking) women, the Austriancase is interesting because it affects working women of all incomegroups. However, it is not a priori clear for which group the PLrules generate the strongest incentives. The flat PL benefit impliesthat lower-income parents have a higher earnings replacement ra-tio. To shed light on the importance of cash transfers, we look atdifferences in response between high- and low-income women. Thejob protection policy may be more important for career-orientedwomen. This is because job protection shields working womenfrom future income losses due to firm-specific human capital de-preciation or deferred payment contracts. To shed light on theimportance of job protection, we look at differences in responsesbetween blue- and white-collar women. As firm-specific humancapital and internal labor markets are arguably more importantin white-collar professions, we would expect stronger responsesfrom white-collar women.

The empirical analysis draws on a unique and very informa-tive data set, the Austrian Social Security Database (ASSD). Setup to provide information to calculate pension benefits for privatesector employees (about 80% of Austrian employment), the ASSDcollects detailed information on a woman’s earnings and employ-ment history from employers; and it also contains information ontake-up of PL benefits and on a woman’s fertility history from thepoint of time when she first worked in the private sector. We ex-tract information on PL-eligible women who gave birth to the firstchild observed in ASSD in periods that cover the reform, and we


analyze subsequent fertility and labor market outcomes both inthe short run (three years after the first birth) and in the long run(ten years after the first birth).

Our empirical analysis uncovers five key results. First, wefind that the extension of PL enacted in July 1990 had a strongimpact on subsequent fertility behavior. We find that both thecurrent-child PL effect and the future-child PL effect are quan-titatively large. In the short run (within three years) fertility in-creases by 5 percentage points (15%) as a result of extended leaveon the current child and by 7 percentage points (21%) as a resultof extending leave for the future child. Second, we find not onlythat fertility increases temporarily, but also that this increasepersists in the long run. Among women eligible for the more gen-erous PL rules, three out of 100 women gave birth to an additionalchild within ten years after the birth of the first child who wouldnot have done so with short leave. Although we do not observethe completed fertility cycles of mothers, we conclude that it isquite likely that the policy change affected not only the timingbut also the number of births. Third, we find that most mothersexhaust the full duration of their leaves and that return to workis substantially delayed even after PL has been exhausted (by 10percentage points in the short run and by 3 percentage points inthe long run). Interestingly, although work experience and earn-ings decrease strongly in the short run, we do not find that longerleaves have long-run effects on work experience and cumulativeearnings. Fourth, there are differential fertility responses of high-and low-wage women and blue- and white-collar workers, indi-cating that both cash transfers and job protection have a sizableimpact on fertility and labor market responses. Fifth, we find thatthe 1996 reduction of PL duration had a significant effect on thetiming of subsequent births but no impact on the number of chil-dren. The 1996 partial reversal of the extension granted in 1990also partially undoes the short-run reductions in employment andearnings generated by the 1990 extension of PL duration.

This paper contributes to the literature on the impact of cashtransfers on fertility behavior (Hardoy and Schøne 2005; Milligan2005) and to the literature on the effects of welfare reform on fer-tility behavior of low-income women in the United States (Hoynes1997; Moffitt 1998; Rosenzweig 1999; Joyce et al. 2004; Kearney2004).1 Furthermore, Averett and Whittington (2001) study the

1. Bjorklund (2007) provides a survey of recent empirical work on the impactof family policies on fertility.


impact of the Family and Medical Leave Act in 1993 on fertility.Hoem (1993) studies the impact of PL rules (“speed premium”) forSweden, and Piketty (2003) looks at parental education benefitsin France. This paper also contributes to the literature studyingthe effects of family leave on labor market outcomes. Klermanand Leibowitz (1997, 1999) and Baum (2003) find only weak ef-fects on employment and wages. Berger and Waldfogel (2004) forthe United States, Baker and Milligan (2008) for Canada, andRuhm and Teague (1997) and Ruhm (1998) for European coun-tries find a closer relationship between PL provisions and the labormarket attachment of mothers. Albrecht et al. (1998) show thatPL-induced career interruptions are not associated with a wagepenalty for women in Sweden. Schonberg and Ludsteck (2007)study the causal effects of successive changes in PL duration onemployment and earnings in Germany.2

Our paper adds to this literature in at least four ways. First,our empirical analysis provides convincing evidence on the ef-fects of changing PL duration for the current child by adopting aquasiexperimental approach. Second, our study also provides ev-idence on the effect of changing PL duration on the future child.Understanding these two effects is crucial in PL design. Third,our results speak to the important issue of how policies that en-hance the balance between work life and family life affect fertilitybehavior. This is different from many previous papers that havefocused on the effect of cash transfers on fertility. Fourth, our em-pirical analysis allows assessing the effects of changes in PL onboth short- and long-run labor market outcomes for mothers. Thisallows addressing the frequently raised concern that generous PLpolicies will harm mothers in the long run because extended pe-riods off work lead to depreciation of human capital and worsefuture labor market prospects.3

The paper is organized as follows. The next section discussesthe institutional setup and develops testable hypotheses as tohow the reform might have affected fertility and labor market

2. Several recent papers study the effects of parental leave or child care onchild development (Baker and Milligan 2008; Dustmann and Schonberg 2008;Berger, Hill, and Waldfogel 2005; Baker, Gruber, and Milligan 2008). A furtherrelated literature analyzes the impact of financial incentives on fertility and laborsupply using a structural approach. See Moffitt (1984) for an early approach tothis question and Laroque and Salanie (2005) for a more recent study of the effectsof financial transfers on fertility and labor supply.

3. In a companion paper, we discuss how the two Austrian reforms affect thequality of mothers’ first postbirth jobs (Lalive and Zweimuller 2007). The analysisof the current paper is more comprehensive in providing a detailed assessment ofthe overall effects of PL on earnings and employment in all postbirth jobs.


behavior. Section III discusses the data and presents our empiricalstrategy for measuring the effects of PL duration on the currentchild and on the future child. Section IV presents the fertility andlabor market effects of the increase in PL duration for the currentchild enacted with the 1990 reform. Section V studies the effect ofthe 1990 increase in PL duration for the future child. Section VIanalyzes the impact of the 1996 reform, and Section VII concludeswith a discussion of the relevance of our findings.

II. BACKGROUND AND HYPOTHESES

This section provides the institutional background of the Aus-trian PL system and discusses how two reforms in the 1990s mayaffect higher-order fertility and work careers of mothers.

II.A. The Austrian PL System in the 1990s

Working women have access to two types of family policiesin Austria: maternity leave and parental leave. Maternity leavelasts for sixteen weeks (eight weeks before and eight weeks afterthe actual birth) and pays the average wage rate over the lastquarter before the birth.

Before July 1990, PL started after maternity leave ended andlasted until the child’s first birthday. To become eligible for PLa mother had to satisfy a work requirement. Women taking upPL for the first time had to have worked (and paid social securitycontributions) for at least 52 weeks during the two years priorto birth or be eligible for unemployment benefits—again fulfillinga work requirement of 52 weeks out of the two years prior toentering unemployment. For mothers with at least one previoustake-up of PL or first-time mothers below the age of twenty years,the work requirement is reduced to twenty weeks of employmentduring the last year prior to birth. Moreover, PL is also renewedif the mother gives birth within a “grace period” that extends upto four months after the end of an earlier leave.4

4. The exact legal definition of the length of the grace period is that thework requirement is also abandoned if a new maternity protection period startswithin a grace period of six weeks after the formal termination of a previousPL. Because maternity protection starts about eight weeks before the due date,the rules effectively imply that eligibility for PL is renewed for any new childexpected to be born within fourteen weeks after the end of the previous leave.Because expected birth dates are not observed in our data, we consider a birth tobe realized within the automatic renewal window if it occurs no later than fourmonths after the end of the previous PL. Work exemptions for higher-order birthsare in place in countries where PL lasts long enough so that women could give


0200

400

600

800

10

00

Eu

ros

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36Time since birth (months)

Before July 1990 After July 1996

July 1990 until June 1996

Maternity leave and PL benefits

010

20

30

Weeks

0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36Time since birth (months)

Before July 1990 After July 1996

July 1990 until June 1996

Work required for PL

(B) Work requirement for higher-order births(A) Monthly transfer income

FIGURE IPL Benefits and Work Requirement for Higher-Order Births

Figure shows the benefit path for a women earning real 1,000 euros per monthbefore giving birth to her first child (A) and the number of weeks she needs to workfor parental leave to cover the subsequent child (B). The parental leave benefit is340 euros per month irrespective of prebirth monthly income. Dotted line refersto the situation before July 1990, solid line refers to the situation between July1990 and June 1996, and dashed line refers to the post–July 1996 rules. Source.Austrian federal laws, various years.

PL provisions are twofold. On the one hand, PL protects theprevious job. A mother has the right to return to her previousemployer until PL ends. Moreover, she cannot be dismissed dur-ing the first four weeks after returning to work.5 On the otherhand, PL is associated with a government transfer. A mother eli-gible for PL in 1990 received a PL benefit of about 340 euros permonth (31 percent of gross median female earnings). Benefits arenot means-tested and not taxed, implying a median net income re-placement ratio of more than 40 percent. Single women (or womenwith a low-income partner) are eligible for higher benefit levels(Sonderunterstutzung).

Figure IA shows the time path of transfer income for a PL-eligible woman who has earned 1,000 euros per month during thequarter before birth. Maternity leave transfers amount to 1,000

birth to a new child while being covered by a PL from a previous child. In Germany,job protection is extended when a mother gives birth to a child within a currentleave. The “speed premium” in Sweden grants higher PL benefits to parents whohave subsequent children within sufficiently short intervals. Also, the PL systemsof the Czech Republic, Slovakia, and Estonia feature renewal rules that are verysimilar to the Austrian system.

5. PL renewal makes mothers eligible for a maternity leave transfer that iseighty percent higher than the regular PL transfer. The maternity leave transferof mothers who work in between two births equals the average wage in the threemonths prior to giving birth (the same as for a first birth). PL renewal leaves jobprotection unchanged.


euros for a period of about two months after birth.6 After mater-nity leave has been exhausted, this mother has two options. Oneis to arrange care for her newborn child and return to her prebirthjob earning 1,000 euros per month. This option is complicated bythe fact that the Austrian child care system for children under theage of three years is rather limited. Alternatively, she can providecare for her newborn child and take up PL, earning 340 eurosper month until her child turns one year old. On her child’s firstbirthday, she can decide to return to her prebirth job, take up anew job, or continue to provide care for her child. In the eventthat she gives birth to a new child before her previous child turns15.5 months old, she has access to renewed leave (Figure IB). Anychild born after that date will be covered only if the mother hasbeen working for at least twenty weeks prior to giving birth to thenew child.

In July 1990, a first PL reform increased the maximum dura-tion of PL to two years and was enacted on July 1, 1990.7 A furtherreform in 1996 introduced a change in PL duration by introducinga one-partner PL maximum of eighteen months. Because Austrianfathers effectively do not take up PL, the one-partner maximumremoved the last six months of PL that were added in 1990.8

6. Because maternity leave is initiated eight weeks prior to expected date ofbirth, the pre- and postbirth durations of maternity leave vary.

7. In December 1989, the PL system was changed from a “maternity” to a“parental” leave system, allowing for the father to go on PL also. However, this isof no practical consequence. In 1990 fewer than 1% of fathers took advantage ofthat possibility. A second change was that women in farm households and familybusinesses, as well as women who did not meet the employment requirements,became eligible for a transfer equal to 50% of regular PL benefits up until the child’ssecond birthday. This is of no importance in the present analysis because weconfine ourselves to behavior of female dependent employees. Furthermore, thereform made it possible to take part-time PL, either between a child’s first andsecond birthday (by both parents at the same time) or between a child’s first andthird birthday (only one parent or both parents alternating).

8. Compared to the U.S. Family and Medical Leave Act (FMLA), the AustrianPL rules are very generous. The FMLA grants twelve weeks of unpaid leave toemployees in firms with more than fifty workers. Compared to current OECDsystems, the pre-1990 PL system was of average generosity. The rules were verysimilar to those currently in place in Canada (twelve months PL, cash transfer55 percent of previous earnings), Australia (twelve months PL, unpaid), or theUnited Kingdom (eighteen weeks paid maternity leave, thirteen months unpaidPL). Austrian post-1990 rules are more similar to those currently in place incontinental Europe. The German system grants three years of PL and a generouscash benefit (100 percent of prior earnings on maternity leave, 67 percent of priorearnings for the first fourteen months of PL, and a flat transfer thereafter). InFrance mothers get three years of PL, 80 percent of prior earning for the firsttwelve months, and a flat transfer thereafter. Also, Sweden and Norway offer longleaves and PL benefits replace a very large fraction of prior income. Interestingly,the renewal option is not unique to the Austrian system. The Swedish “speedpremium” shares similarities, as PL benefits are extended when an additional


II.B. Effects on Fertility and Work Careers

Extending PL from one year to two years may affect futurefertility for two different reasons: (i) a longer PL duration forthe current child facilitates access to automatically renewed PLbenefits for a new child; and (ii) a longer PL duration for thefuture child reduces directly the cost of this child. Arguably, takingadvantage of PL renewal is difficult when PL leave is short. Theone-year policy forces a mother who wants PL protection for thefuture child to conceive a new child quite early after the birth ofthe previous child.9 The 1990 reform adds twelve crucial monthsto the automatic renewal period. Thus, achieving automatic PLcoverage for a future child is easier under the two-year policy thanunder the one-year policy (Figure IB).10 In contrast to the 1990PL extension, the 1996 PL reduction did not change the biologicalfeasibility of PL renewal. To become eligible without having to goback to work, a mother has to give birth to a new child within 21.5months.

By inducing mothers to give birth to a future child withinthe automatic renewal period, the 1990 PL extension is likely tochange the spacing of births. Note, however, that any shock induc-ing mothers to give birth to planned children earlier may translateinto a long-run increase in the total number of children. As fertil-ity plans are realized earlier, shocks to partnerships, health, etc.,that are inducing parents to give up family plans in a one-yearsystem have weaker effects on fertility in a two-year system.11

child is born within two years after the birth of a previous child. The Germansystem also grants the possibility of PL renewal with respect to job protection(but, unlike in the Austrian system, PL benefits do not cease when a parent goesback to work). The PL systems of the Czech Republic and Slovakia are almostidentical to the Austrian system and have the PL renewal feature.

9. To see this more clearly, consider a woman who gives birth on September1, 1988. She would be entitled to PL through September 1, 1989. To qualify for PLrenewal, with the eight-week prebirth maternity leave and the six-week post-PLgrace period, she would have to give birth by December 14, 1989. Note that thisrequires conceiving a new child by March 1989, no later than 5.5 months aftergiving birth to the previous child, implying a space between births of at most 15.5months.

10. Under the two-year policy, a woman who gives birth on September 1, 1990,qualifies for PL renewal if a second child is conceived by March 1992, or 18 monthssubsequent to giving birth to the previous child.

11. Notice that when this argument is applied to the 1996 PL reduction, itis not clear whether this reform will lead to more or less children. On the onehand, the 1996 reform requires a tighter space between births for a mother whotakes advantage of renewal. On the other hand, although the required space isbiologically feasible, it is shorter than before and may induce some mothers todelay a planned birth. The first effect increases and the last effect decreases thenumber of births.


Extending PL may also affect higher-order fertility becauseit lowers the cost of having a future child. Ceteris paribus, a two-year leave for the future child is more attractive than a one-yearleave. Thus, the 1990 reform is expected to increase the numberof children born to women exposed to the new policy.

The second key aim of PL policies is to facilitate balancingfamily work and market work. Changes in the duration of PL forthe current child may affect mothers’ work careers in two ways.Take-up of extended leaves delays return to work, lowers employ-ment, and lowers labor earnings in the short run (0–36 monthsafter the birth of the current child). Moreover, prolonged careerinterruptions may also lead to mothers’ postbirth careers deteri-orating in the long run (37 to 120 months after the birth of thecurrent child). Changes in PL duration for the future child are ex-pected to affect short-run postbirth work careers only indirectly,via their effect on births.

Austrian PL offers two distinct types of benefits: a flattransfer and job protection. Flat transfers translate into strongdifferences in replacement rates. We therefore expect strong het-erogeneity in the responses to changes of PL in mothers with highearnings prior to birth and mothers with low prebirth earnings.Moreover, PL policies target not only costs associated with fore-gone current income but also costs associated with loss of lifetimeincome following a job loss. A longer duration of job protection maybe particularly beneficial for mothers with firm-specific humancapital or mothers who are on deferred payment contracts. To shedlight on this issue, we compare women working in white-collaroccupations to women in blue-collar jobs. Arguably, job-specifichuman capital, internal labor market, and career concerns aremore important in white-collar jobs, so the job-protection channelshould trigger stronger responses for white-collar women than forblue-collar women.

III. DATA AND EMPIRICAL STRATEGY

In this section we first discuss the available data. We thenpresent the empirical strategies and explain the assumptions un-der which we identify the causal effect of changes in PL durationon fertility and labor market outcomes.

III.A. Data

Our empirical analysis is based on the Austrian Social Secu-rity Database (ASSD). This database collects information relevant


to old-age social security benefits. As these benefits depend on in-dividuals’ earnings and employment histories, the database col-lects information on work histories for the universe of Austrianprivate sector employees. Furthermore, the database also containsinformation on exact dates of births. A disadvantage of the ASSDis partial recording of birth histories. ASSD records all births thatoccur after a woman’s first job in the private sector. This meansthat we can precisely determine the relative parity of any birthbut we cannot determine any birth’s absolute parity.12

Our ASSD extract covers women giving birth to their firstASSD child in the years 1985, 1987, 1990, 1993, and 1996. We ob-serve second-child births, return to work, employment, and earn-ings for these women until the year 2000, allowing us to analyzeabout ten years of a woman’s life for the 1990 reform and less thanthat for the 1996 reform. We focus on mothers who are likely to beat parity one because this yields a comprehensive picture of howchanges in PL on this first child affect future fertility and workcareers.13

We establish PL eligibility for these women by consideringwork careers two years prior to their giving birth to the firstchild. Note that measuring eligibility is complicated because awoman’s work career in the public sector is unobserved (but countsfor PL eligibility) and because a woman’s parity is unobserved.Our eligibility indicator allocates a woman into the PL-eligiblegroup if she demonstrates any employment or has ever been eli-gible for unemployment benefits in the two years prior to givingbirth. Clearly, this definition of eligibility may give rise to mis-classifying ineligible women into the eligible group, thus reducingtake-up. More importantly, this encompassing definition of eligi-bility allows identification of a group of ineligible women (whoneither worked nor received unemployment benefits in the two

12. Partial recording of previous births implies that we cannot precisely de-termine the parity of a birth. To make things precise, assume a working womangives birth to a child at age thirty. If this woman is continuously employed in theprivate sector, we know this birth is her first birth and all subsequent births arerecorded in the ASSD. However, if this woman entered the ASSD, say, at age 25(e.g., because she was previously employed in the public sector and not covered bythe ASSD), she could have could have given birth to children before entering theASSD. More generally, if we observe x previous births in the data, we know thatany subsequent birth is of parity x or higher.

13. Our focus here is on mothers, even though fathers could in principle takeup PL provisions too. There are two reasons that we do not include fathers in ouranalysis. First, take-up by fathers is extremely low. Second, our database does notprovide information on the dates of birth of a father’s children. Hence, fathers’reactions to PL policies cannot be addressed in the present context.


years before giving birth) who do not go on to collect PL in ourdata. This finding makes us confident that we cleanly identify thegroup of PL-ineligible women—a group that is of importance indiscussing the validity of the empirical strategy measuring theeffect of changing PL duration for the future child. Furthermore,in line with demographic research, we restrict attention to womenaged 15 to 45 years when giving birth to their first ASSD children.

The ASSD allows constructing a set of four key outcome mea-sures. Information on the date of birth of the second ASSD childallows measuring whether a mother gives birth to at least oneadditional child. Information on the date of return to work allowsdiscussing return-to-work decisions. Information on the woman’swork and earnings career allows assessing employment and earn-ings in the two years prior to giving birth and up to ten yearsafter birth. In the analysis below, we measure employment andearnings at a yearly frequency relative to the birthday of the firstchild. The set of conditioning variables comprises information onemployment, unemployment, and earnings since entry into ASSD(either 1972 or time of entry into the labor market) and on awoman’s labor market position exactly one year prior to birth(employed or unemployed, industry and region of employer, dailylabor income white-collar or blue-collar occupation).14

III.B. Empirical Strategy

Our empirical strategy uses the 1990 and 1996 PL reformsto identify the effect of PL duration for the current child and theeffect of PL duration for the future child.

Table IA shows PL durations for the current and the futurechild for three cohorts of women who gave birth to a first child atthree different dates: July 1990, June 1990, and June 1987.15 July1990 mothers are eligible for 24 months of PL for the current childand PL renewal takes place when a future child is born within 27.5months after the July 1990 birth. PL duration is 24 months for anychild born within three years. June 1990 mothers are eligible for12 months of PL for the current child and PL renewal is possiblewhen a future child is born within 15.5 months. PL duration is 24months for any child born within three years. June 1987 mothersare eligible for 12 months of PL for the current child and any

14. The data do not have information on hours, education, or marital status.15. Table IB displays the analogous cohorts for the 1996 reform.


TABLE IEMPIRICAL DESIGN

Parental leaveParental leave Automatic future child

Current child born current child renewal (born within 36 months)

(A) 1990 reformJune 1987 12 months 15.5 months 12 monthsJune 1990 12 months 15.5 months 24 monthsJuly 1990 24 months 27.5 months 24 months

(B) 1996 reformJune 1993 24 months 27.5 months 24 monthsJune 1996 24 months 27.5 months 18 monthsJuly 1996 18 months 21.5 months 18 months

Source: Austrian Federal Laws, various years.

future child born within 36 months. PL is automatically renewedif the future child is born within 15.5 months.

Identifying the Current-Child PL Effect. Can the current-child PL effect be identified from a comparison of June 1990mothers with July 1990 mothers? These two groups differ in theduration of the PL renewal period (and the associated PL dura-tion for the first child), but they have the same PL duration fora future child. The crucial identification issue is to what extentmothers could have influenced the date of birth of the currentchild in anticipation of the policy change. There are at least tworeasons that lead us to believe that mothers cannot have “timed”births. First, the conception of a child is an event that cannotbe perfectly planned by parents. Second, even if parents coulddeterministically plan a birth, self-selection requires that par-ents have been informed of the July 1990 policy reform at thedate of conception. We performed a content analysis of the ma-jor Austrian newspapers to check the information that potentialparents had nine months before the June/July 1990 births, thatis, in September/October 1989. The public discussion about thePL reform started in November 11, 1989, but the ruling coalition(social democrats and conservatives) discussed it until April 5,1990, until it had designed a policy reform apt to find parliamen-tary approval. Because it was not clear until three months priorto the policy change whether a PL reform would take place andhow it would be implemented, the June/July 1990 births were notinfluenced by anticipation of the July 1990 PL reform. However,


although anticipation of the PL reform at the date of conceptionis unlikely, it is still possible that mothers could have influencedthe timing of a birth by postponing induced births or planned cae-sarean sections.16 We assess the presence of such fine tuning intwo ways. First, analyzing the number of children born in Juneand July 1990, we do not find evidence of a spike in births on July1, 1990. Second, because birth timing is likely to be strongest rightaround the reform date, we assess the sensitivity of our resultsby excluding births occurring one week before and one week afterJuly 1, 1990.17

Because babies’ dates of birth assign extended PL and parentscould not anticipate extended leave, we can identify the current-child PL effect by comparing treated mothers giving birth (to thecurrent child) in July 1990 to control mothers giving birth in June1990.18 Although treatment and control samples are selected overtwo successive months, we consider their fertility and labor mar-ket outcomes over the following 36 months (short-run effects) andthe following 120 months (long-run effects). Differences betweentreated and control mothers cannot be attributed to differencesin the environment. In fact, the treated and control mothers arefacing different parental leave incentives but practically identicaleconomic conditions following the June/July 1990 birth.

Identifying the Future-Child PL Effect. To identify the effectof PL duration on the future child, we compare short-run (0–36months after birth) and medium-run (37–72 months after birth)outcomes of June 1987 to June 1990 mothers. Identification of the

16. Gans and Leigh (2006) show that the introduction of the Australian babybonus on July 1, 2004, led to a significant increase in the number of births onthat same day, suggesting that parents postponed their births to ensure they wereeligible for the bonus. Similarly, Dickert-Conlin and Chandra (1999) show thatthe U.S. tax system creates an incentive to give birth to a child on the 31st ofDecember rather than on the 1st of January. They find that the probability that achild is born in the last week of December, rather than the first week of January,is positively correlated with tax benefits.

17. Mothers could also have changed prebirth work patterns in order to be-come eligible for extended leave. Empirical evidence on prebirth employment inFigure VC is not consistent with such qualification effects.

18. This is essentially a regression discontinuity framework (RDD). Denotethe treatment status of a mother by D, where D = 1 if a mother has access to atwo-year leave, and D = 0 if a mother has access to a one-year leave. Eligibility fortreatment is a discontinuous function of the current child’s date of birth T . Denoteby t the date when policy changes (July 1, 1990, for the change from the 12-monthto the 24-month policy and July 1, 1996, for the change from the 24-month tothe 18-month policy). Provided that limε→0 Pr(D = 1|T = t + ε) �= limε→0 Pr(D =0|T = t − ε), our design satisfies the “fuzzy” RDD assumption (Hahn, Todd, andKlaauw 2001). Figure II is consistent with this assumption being strongly satisfied.


future-child PL effect requires stronger assumptions than thoseneeded to identify the current-child PL effect. The central identi-fying assumption is that there are no substantial cohort or timeeffects that pollute the comparison between June 1987 and June1990. We propose three ways of assessing the plausibility of thisassumption. First, we analyze PL-ineligible women as a controlgroup and check whether outcomes for June 1990 mothers followa different trend than outcomes for June 1987 mothers, finding nosignificant time trend. Clearly, this small control group is less thanperfect because it encompasses women with weak prebirth labormarket attachment. Second, we study time and cohort trends forPL-eligible mothers both before and after the 1990 reform. Third,we also exploit the way PL rules change with time since firstbirth. Although differences in PL rules between the treated andthe control group exist during the first 36 months, the same rulesapply 37–72 months after birth. Thus, treated and control moth-ers should differ in the period 0–36 months after birth but less soin the period 37–72 months after birth.

Finally, adding up the effect of extending current leave withthe effect of extending future leave allows estimating the totaleffect of PL duration and PL renewal. Arguably, this total effectcomes close to the effects generated by moving fully from a one-year to a two-year system—an effect of prime policy interest.

IV. EXTENDING PL DURATION FOR THE CURRENT CHILD

This section discusses the effects of extending PL durationfor the current child on fertility and return-to-work behavior. Theanalysis proceeds in three steps. We first document the fertilityeffects of changing PL duration for the current child. Next, we turnto labor market responses. And finally, we assess the potentialheterogeneity in the responses to the reform by groups that differin income and in broad occupation

IV.A. The Impact on Fertility

The ASSD reports information on PL take-up. Focusing onPL eligible mothers of newborn children, Figure II reports av-erage PL take-up (including zeros) associated with a first childborn between June 1 and July 30, 1990. June 1990 mothers areeligible for ten months of the parental leave (excluding the firsttwo months of maternity leave). Results indicate that of these tenmonths, June 1990 mothers take up on average nine months of PL.

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FIGURE IIParental Leave Taken with Current Child

June smoothed backward, July smoothed forward (15-day moving average).Source. ASSD, own calculations. Sample restricted to PL-eligible women givingbirth to a child in June 1–30 or July 1–30 of 1990.

In contrast, average PL take-up by July 1990 mothers amounts to19 months, which is considerably more than for any mother givingbirth in June 1990. Interestingly, average PL take-up is about 85percent of the 22 months covered by PL after the 1990 reform (af-ter two months of maternity leave). This suggests that the secondyear of leave is valued by the majority of eligible women.

Figure II suggests comparing treated mothers who give birthin July 1990 to control mothers who give birth in June 1990.How informative is this contrast on the causal effect of extendingPL duration for the current child? Table II provides descriptiveevidence on PL take-up by years since birth as well as on keyprebirth characteristics. Treated and control mothers are identicalwith respect to PL take-up in the first year after giving birthto their current child. Both cohorts take up about 9.2 monthsout of the roughly 10 months offered by the PL system. Strikingdifferences in PL take-up appear in the second year after birth.Whereas treated mothers spend about ten months on PL, controlmothers spend less than one month on PL (with their secondchild).


TABLE IIDESCRIPTIVE STATISTICS, MOTHERS GIVING BIRTH IN JUNE AND JULY 1990

July 1990 June 1990 Contrast

Mean SD Mean SD Est SE

(A) TreatmentParental leave,

yr 1 (mths)9.208 (2.194) 9.196 (2.139) 0.012 (0.055)

Parental leave,yr 2 (mths)

10.082 (3.486) 0.795 (2.209) 9.287 (0.074)∗∗∗

(B) DemographicsAge 20–24 0.423 (0.494) 0.443 (0.497) −0.02 (0.013)Age 25–29 0.346 (0.476) 0.343 (0.475) 0.004 (0.012)Age 30–34 0.109 (0.311) 0.087 (0.282) 0.022 (0.008)∗∗∗Age 35–44 0.029 (0.167) 0.025 (0.156) 0.004 (0.004)

(C) Labor market historyEmployment (years) 5.846 (3.94) 5.701 (3.792) 0.144 (0.098)Unemployment (years) 0.265 (0.543) 0.257 (0.484) 0.008 (0.013)Earnings not observed?

(1 = yes)0.028 (0.165) 0.026 (0.16) 0.002 (0.004)

Daily earnings (euros) 34.49 (42.942) 33.313 (37.719) 1.178 (1.026)

(D) One year before birthEmployed (1 = yes) 0.868 (0.339) 0.867 (0.339) 0.001 (0.009)White collar (1 = yes) 0.435 (0.496) 0.441 (0.497) −0.006 (0.013)Daily 1989 earnings

(euros)36.826 (20.935) 36.142 (20.397) 0.684 (0.526)

Observations 3,225 2,955

Source: ASSD, own calculations. Sample restricted to PL-eligible women giving birth to a child in June1–30 or July 1–30 of year 1990.

Notes: Mean and standard deviation (in parentheses) for women giving birth to their first child in June1–30 or July 1–30, 1990. Labor market history covers the period from January 1972 to date of birth in Juneor July 1990. Labor earnings are unobserved for women coming from the public sector, which is not coveredby ASSD. Daily earnings refer to real mean earnings measured in year 2000 euros per day worked—real totallabor earnings divided by work experience. Daily 1989 earnings are earnings on the prebirth job measured inyear 2000 euros—the job held exactly one year before giving birth. Data also contain information on regionand industry of the prebirth employer.

In contrast to PL take-up, both cohorts appear to be quitesimilar with respect to prebirth characteristics. Both groups showsimilar amounts of previous work and unemployment experienceand previous average labor earnings. Also, labor market statusone year before the 1990 birth differs only slightly. Although July1990 mothers are significantly more likely to be in the age bracket30–34 years than June 1990 mothers, the overall age compositionis quite comparable. Almost 80 percent of all births occur in theage group 20–29 and about 13 percent at ages thirty and older.

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FIGURE IIIHow Does Parental Leave Affect Higher-Order Fertility?

Figure reports the percentage of women who gave birth to at least one ad-ditional child within three years after giving birth in June or July 1990. Junesmoothed backward, July smoothed forward (15-day moving average). Source.ASSD, own calculations. Sample restricted to PL-eligible women giving birth to achild in June 1–30 or July 1–30 of 1990.

Table II also indicates that there are substantially morebirths in July 1990 than in June 1990. Is this evidence for birthtiming? We investigate this issue by analyzing the number ofbirths in June and July 1990 on a day-to-day basis, finding asteady increase but no discontinuity in the number of births onJuly 1 (not reported). Thus, comparing June 1990 mothers toJuly 1990 mothers, we find little evidence of seasonality in thecomposition of cohorts but strong seasonality in the number ofbirths.19

Figure III presents first evidence on the causal effect of ex-tending PL for the current child on the decision to have an addi-tional child. The vertical axis measures the percentage of womenwho gave birth to a second child within the 36 months following

19. Indeed, births in July exceed births in June in any given year of our sampleperiod (1985, 1987, 1990, 1993, 1996). Nevertheless, we perform sensitivity testscomparing births that occur, respectively, in the first/second half of June 1990 andthe first/second half of July 1990 to assess the sensitivity of our results to short-runtiming of births.


the 1990 birth. To smooth out the noise in date-of-birth data,Figure III presents fifteen-day backward moving averages forJune and fifteen-day forward moving averages for July. Resultsindicate that 32.2 of 100 women in the control group give birthto an additional child within the 36 months. In contrast, almost36.7 of 100 women do so in the treated group. Thus, almost 5 of100 women tend to give birth to an additional child in the treatedcohort who do not do so in the control group. The magnitude ofthis effect seems quite robust and varies only slightly over theparticular time window one adopts.

Table III discusses the validity of this result, explaining theprobability of giving birth to an additional child within three yearsin the context of a linear probability model. Column (1) estimatesa baseline difference in short-run higher-order fertility of about4.5 additional births per hundred mothers. Column (2) includesinformation on age and prebirth labor market history to assessthe sensitivity of the key result to composition of treated and con-trol group mothers. Results indicate that extended PL increasesshort-run fertility by 4.9 additional children per hundred women.Moreover, estimates indicate that higher-order fertility is lowerfor older women and for employed women. Column (3) estimatesthe causal effect of extended leave on births by reducing the widthof the baseline window from thirty to fifteen days. Results suggestthat about 5.4 children are born to one hundred women with ex-tended leave that are not present under short leave. Anticipatingextension of leave, mothers with a strong desire to have two ormore children might have timed the birth of their first child to takeplace on or after July 1, 1990 (by postponing a planned caesareansection or delayed induction of a birth to July 1 or later). Column(4) excludes births taking place one week before and one weekafter July 1, 1990. Excluding these observations leaves results es-sentially unchanged; point estimates even slightly increase. Thelast column of Table III runs a placebo regression where we repeatthe regression of column (2) using data on mothers giving birth totheir first ASSD child in June and July 1987. These two groupsfaced identical PL rules and hence we should not see any majordifferences between them. In fact, the estimated treatment effectis insignificant and the point estimate very close to zero.

The empirical analysis has documented a short-run responseof higher-order fertility. Does this short-run response persist inthe long run? Contrasting June and July 1990 mothers, Figure IVshows how extended leave for the first child affected higher-order


TABLE IIITHE THREE-YEAR FERTILITY EFFECT OF EXTENDING PL DURATION FOR THE CURRENT

CHILD, JULY 1990 (24 MONTHS PL) VS JUNE 1990 (12 MONTHS PL)

Base Controls Half-window Anticipation Placebo

July .045 .049 .054 .056 .008(.012)∗∗∗ (.012)∗∗∗ (.017)∗∗∗ (.014)∗∗∗ (.011)

Age 20–24 .045 .035 .042 .012(.024)∗ (.034) (.027) (.021)

Age 25–29 .029 .014 .028 .048(.028) (.039) (.031) (.025)∗

Age 30–34 −.059 −.073 −.058 .020(.033)∗ (.046) (.037) (.033)

Age 35–44 −.111 −.116 −.099 −.125(.043)∗∗∗ (.062)∗ (.049)∗∗ (.034)∗∗∗

Employment .006 .003 .006 .008(years) (.006) (.009) (.007) (.007)

Employment sq. −.057 −.048 −.052 −.104(.038) (.054) (.044) (.046)∗∗

Unemployment .011 .028 .011 −.020(years) (.022) (.034) (.025) (.028)

Unemployment sq. −1.793 −1.850 −1.783 1.065(.694)∗∗∗ (1.202) (.752)∗∗ (1.233)

Earnings −.025 −.038 −.004 .062unobserved (.045) (.060) (.051) (.046)

Daily earnings .000 −.000 .000 .001(euros) (.000) (.000) (.000) (.000)∗∗

Daily earnings sq. −.000 .000 −.000 −.000(.000) (.000) (.000) (.000)∗∗∗

Employed −.111 −.036 −.121 −.099(.050)∗∗ (.075) (.057)∗∗ (.045)∗∗

White collar −.011 −.031 −.004 −.005(.017) (.024) (.020) (.016)

Daily 1989 .002 .001 .002 .002earnings (.002) (.003) (.002) (.002)

Daily 1989 −.000 .000 .000 −.001earnings sq. (.002) (.003) (.002) (.002)

Industry No Yes Yes Yes YesRegion No Yes Yes Yes YesMean of dependent

variable0.345 0.345 0.346 0.345 0.258

N 6,180 6,180 3,045 4,757 6,151

Source: ASSD, own calculations. Sample covers PL-eligible women giving birth to their first child in June1–30 or July 1–30 of the respective years.

Notes: Linear model of the probability of giving birth to a second child within three years of giving birthto a first child in June/July 1990. Standard error in parentheses. ∗(∗∗ ,∗∗∗) denote significance at the 10% (5%,1%) level, respectively. Inference based on Huber–White standard errors. “Base”: July (24 months PL) vs June(12 months PL). Controls: adds controls (Table II). Half-window: June 16–July 15. Anticipation: June 1–23and July 8–30. Placebo: June 1987 (12 months PL) vs July 1987 (12 months PL).


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FIGURE IVAdditional Births (“Hazard” and Cumulative Proportion), July 1990 (24 Months

PL) vs. June 1990 (12 Months PL)Figure reports the additional child hazard, that is, the women giving birth to

an additional child in month t as a proportion of those who have not given birthto an additional child up to month t (A), and the cumulative proportion of womengiving birth to at least one additional child up to month t (B). Vertical bars indicateend of automatic renewal (dashed for June 1990 mothers, regular for July 1990mothers). Source. ASSD, own calculations. Sample restricted to PL-eligible womengiving birth to a child in June 1–30 or July 1–30 of 1990.

fertility within the ten years following the 1990 birth. Figure IVAshows the second-child hazard rate, that is, the likelihood that awoman gives birth to a second child t months after the 1990 birthconditional on not giving birth to a second child before month t.The control group has a somewhat higher second-child hazard ratebetween months 12 and 16, whereas the treated group has a muchhigher hazard between month 18 and month 28. The differencebetween the two groups is largest during months 22–25, whenthe additional birth hazard is almost 3.5% for the treated groupbut less than 2% for the control group. After month 28 there areno major differences between the two groups. This pattern can berationalized by the PL rules. Recall that the rules grant renewalof PL to control group mothers giving birth before month 16 and totreated mothers giving birth before month 28. Figure IVA showsthat the additional-child hazard diverges most strongly when PLrenewal is possible to treated mothers but impossible to controlmothers.

Figure IVB shows the cumulative proportion of women witha second child by time since the 1990 birth. Results indicate thatthe treated have a lower second-child probability before month 22but a higher one thereafter. Interestingly, the difference does noterode in the long run. Even ten years after the 1990 birth, the


TABLE IVSHORT-RUN AND LONG-RUN FERTILITY EFFECTS OF PL DURATION FOR THE CURRENT

CHILD, JULY 1990 (24 MONTHS PL) VS JUNE 1990 (12 MONTHS PL)


Additional birth .045 .049 .054 .056 .0080–36 months (.012)∗∗∗ (.012)∗∗∗ (.017)∗∗∗ (.014)∗∗∗ (.011)

[.345] [.345] [.346] [.345] [.258]Additional birth .03 .035 .03 .048 −.006

0–120 months (.012)∗∗ (.012)∗∗∗ (.017)∗ (.014)∗∗∗ (.012)[.617] [.617] [.62] [.617] [.556]

Additional birth −.027 −.026 −.029 −.023 −.0060–16 months (.006)∗∗∗ (.006)∗∗∗ (.009)∗∗∗ (.007)∗∗∗ (.006)

[.066] [.066] [.067] [.066] [.069]Additional birth .082 .084 .084 .09 .011

17–28 months (.01)∗∗∗ (.01)∗∗∗ (.014)∗∗∗ (.011)∗∗∗ (.008)[.193] [.193] [.195] [.194] [.123]

Additional birth −.024 −.021 −.023 −.018 −.01129–120 months (.012)∗ (.012)∗ (.017) (.014) (.012)

[.36] [.36] [.359] [.359] [.366]

Observations 6,180 6,180 3,045 4,757 6,151

Source. ASSD, own calculations. Sample: PL eligible women giving birth to their first child in June 1–30(12 months PL) or July 1–30 (24 months PL) in the year 1990.

Notes. This table reports the “July 1990” parameter estimate in a linear probability model comparingpostbirth fertility of mothers giving birth to their first child in June/July 1990. Standard error in parentheses;mean of dependent variable in brackets. ∗ (∗∗ ,∗∗∗) denote significance at the 10% (5%,1%) level, respectively.Inference based on Huber–White standard errors. Base: July (24 months PL) vs. June (12 months PL).Controls: adds controls (Table II). Half-window: June 16–July 15. Anticipation: June 1–23 and July 8–30.Placebo: June 1–23, 1987 (12 months PL) vs. July 8–30, 1987 (12 months PL).

second-child probability of July 1990 mothers is still three per-centage points higher than for June 1990 mothers. This suggeststhat the increase in fertility created by the PL renewal effect af-fects not just the timing but also the total number of children.20

Table IV provides an econometric assessment of both short-run and long-run fertility effects using a linear probability model.The first row repeats the results of Table III on short-run fertil-ity. The second row shows the corresponding result for long-runfertility (birth of a second child within 120 months). Column (1)shows that the effect of extending PL for the child born in 1990

20. Note that June 1990 mothers might still catch up to July 1990 mothers af-ter ten years or due to differential third-child fertility. Although our data provide awindow that is, arguably, too short to provide a definitive assessment of completedfertility, we believe that this is unlikely to happen. First, June and July 1990 moth-ers face identical economic and political circumstances on the third child. Second,because only about 65 percent of mothers give birth to two or more children, thethird-child treatment effect would have to reach an implausibly large magnitude.


leads to three additional children being born to one hundred moth-ers within ten years. Adding controls (column (2)) increases thetreatment effect to 3.5 percentage points; halving the estimationwindow and excluding births closer than seven days before andafter July 1, 1990, does not reverse the result. We conclude thatextending PL for the current child increases long-run fertility.21

Rows (3)–(5) in Table IV document the timing of excess fer-tility. Column (1) in Table IV shows that treated mothers reducefuture-child fertility by 2.6 percentage points in the period whenboth treated mothers and control mothers have access to auto-matic renewal, that is, between months 0 and 16 (row (3)). Thenthere is a strong increase in fertility by 8.4 percentage points inthe period when only treated mothers have access to automaticrenewal, that is, months 17–28 (row (4)). Finally, treated moth-ers are slightly less likely to give birth to a second child betweenmonth 29 and month 120 (row (5)). This is the period when nei-ther group has access to automatic renewal. In sum, our resultssuggest that the short-run change in access to automatic renewalleads to long-run effects on higher-order fertility.

The most likely explanation for the high persistence of fertil-ity effects is shocks (to health, partnership, workplace, etc.) thatmay otherwise induce parents to revise their long-run plans. Weshow that more generous PL induces parents to realize a plannedbirth earlier. This means that some shocks that are inducing par-ents to change family plans in a one-year system no longer affectfamily planning under a two-year system. This is why short-termgains in fertility also persist in the long run.22

IV.B. Labor Market Outcomes

PL rules address the problems of parents in reconciling workand child care. Hence these rules also affect parents’ labor marketoutcomes. We now explore whether and to what extent extending

21. Although the effect estimated here seems large, our estimated short-runimpact is similar in magnitude to that found by Milligan (2005) for pronatalisttransfer policies in Quebec where, depending on the parity, parents got a cashtransfer up to 8000 CAD. Fertility of those eligible is estimated to have increased12% on average and 25% for those eligible for the maximum benefit.

22. Although it is true that some women are induced to have a birth within28 months who would have waited and then never conceived (for preference orbiological reasons), there also appear to be some women who are induced to waitbeyond 16 months. To the extent that these women experience a negative shock,the net positive effects on the other set of women will be offset. Because there is apositive net fertility effect, the data suggest that any offsetting of this kind is notcomplete.


leave from one year to two years affects women’s labor marketoutcomes, by focusing on three different indicators. (i) Return towork measures the probability that a woman has returned to workat least once after giving birth to her first child in June or July1990 in the short run (0–36 months after birth) and in the long run(0–120 months after birth). (ii) Employment refers to the monthsworked per calendar year after birth in the short run (0–36 monthsafter birth) and in the long run (37–120 months after birth). (iii)Earnings measures average pay earned per calendar day afterbirth in the short run (0–36 months after birth) and in the longrun (37–120 months after birth). Note that both employment andearnings are set to zero in periods where a woman does not workand are included in the empirical analysis.23

Figure VA compares the proportion of women returning towork within 36 months after a birth in June and July 1990 by dayof birth. Whereas about 62 of 100 women return to work threeyears after giving birth in June 1990, only about 52 of 100 womendo so after giving birth in July 1990, with a strong discontinuityfrom June 30 to July 1. This suggests a very strong causal impactof PL duration on short-run return-to-work behavior.

Figure VB compares the return-to-work profile during the120 months following the 1990 birth. The figure clearly showsthat the maximum length of PL has an extremely strong impacton return-to-work behavior. About 10% of mothers return to workwithin two months after giving birth (i.e., the end of maternityprotection), the same for July 1990 and June 1990 mothers. About80% of the treated and 83% of the control mothers exhaust the fullPL duration. Although a substantial fraction of both treated (20%)and control mothers (25%) return to work exactly when PL has runout, the majority of women (60% among the treated, 58% amongcontrols) stay home after PL has lapsed. Moreover, extended leavefor the 1990 child seems to lower the fraction ever returning towork. Whereas 85 of 100 women return to work at least onceten years after the 1990 birth, only 82 of 100 treated womendo so.

23. Return to work at date t measures the probability that a woman hasstopped her baby break between date 0 and date t. In contrast, employment countsthe days at work between date 0 and date t (set to zero when a woman doesnot work). Because a woman could have returned to work at some date s < t butdropped out of workforce at some later date τ ∈ (s, t), the two indicators differ.Unconditional labor earnings are average earnings per month and set to zerowhen a woman does not work at all during the respective month. Employmentand earnings are available at an annual frequency.


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FIGURE VReturn to Work, Employment, and Labor Earnings, June 1990 vs. July 1990Panel A reports the percentage of women who have returned to work at least

once within three years after the 1990 birth (June smoothed backward, Julysmoothed forward, fifteen-day moving average); Panel B reports the cumulativeproportion of women who have returned to work at least once since the 1990 birth;Panel C reports average months in employment; and Panel D reports mean laborearnings per calendar day since the 1990 birth. (Panels C and D are drawn onan annual frequency; data points at six, eighteen, etc., months refer to the first,second, etc. year after the 1990 birth.) Employment and earnings are set to zerofor women who do not hold a job. Zeros are included in all our analyses. Source.ASSD, own calculations. Sample restricted to PL-eligible women giving birth to achild in June 1–30 or July 1–30 of year 1990.

Figure VC explores the effects of extended leave on employ-ment. Employment patterns of women giving birth to their firstchild are strikingly asymmetric. Whereas paid work takes upabout nine to ten months per prebirth year, time spent in theworkplace is below seven months in all postbirth years. Interest-ingly, adverse PL effects on return to work do not translate intolower employment rates. Whereas there is a clear short-run em-ployment disadvantage of treated mothers compared to controlmothers in the second year after the 1990 birth, employment isbasically the same from the third year onward. Return-to-work


patterns can be reconciled with employment results as follows.Women eligible for short parental leaves who are planning a fur-ther child return to work in the short run temporarily to gainaccess to renewed parental leave. In contrast, women eligiblefor long parental leaves can exploit the renewal option and donot have to return. This behavioral pattern explains simultane-ously the fact that the fraction ever returning to work is lowerin the treated group but long-run employment in months 37–120remains unchanged. Basically, extending parental leave reducesshort-run temporary return to work but does not affect longer-runlabor supply decisions.

Figure VD displays the evolution of average labor earningsfor the two groups. Again, earnings patterns are strikingly asym-metric in periods covering a first-child birth. Whereas women earnabout 33 euros per calendar day before birth, mothers of newbornchildren earn less than 30 euros in all ten postbirth years. In termsof assessing the effects of extended PL on earnings, Figure VDshows that prebirth average earnings are identical between Juneand July 1990 mothers but diverge strongly immediately afterthey give birth. Earnings are lower for treated women in the firstthree years after the 1990 birth. From year four onward, however,treated mothers earn slightly more than control mothers. Thepositive medium-run earnings effect of extended leave could bedriven by various channels: participation in work, length of work,selection into work, and a genuine behavioral effect (more hours,better jobs due to promotions, etc.). Long-run employment results(months 37–120) suggest that the joint effects of participation andlength of work are close to zero. There is also a small but insignifi-cant composition effect: women with high prebirth wages return tothe job earlier with extended leave than with short parental leave.This implies that the somewhat higher long-run earnings of July1990 mothers are due to a genuine behavioral effect. Althoughthis effect is small, it seems that those mothers who return af-ter extended leaves work somewhat more and/or are employed inrelatively better paid jobs than mothers who return after shorterleaves.

Table V uses linear regression to assess the causal effectsof the 1990 PL extension for the current child on short- andlong-run labor market outcomes. Columns (1)–(5) assess thesensitivity of the results in the same way as the correspondingcolumns in Table IV on short-run fertility. Treated mothers aresignificantly less likely to have returned to work three years


TABLE VLABOR MARKET EFFECTS OF PL DURATION FOR THE CURRENT CHILD, JULY 1990

(24 MONTHS PL) VS. JUNE 1990 (12 MONTHS PL)


Return to work −.109 −.11 −.109 −.105 .0090–36 months (.013)∗∗∗ (.012)∗∗∗ (.017)∗∗∗ (.014)∗∗∗ (.012)

[.564] [.564] [.567] [.561] [.619]Return to work −.03 −.027 −.046 −.023 .009

0–120 months (.009)∗∗∗ (.009)∗∗∗ (.013)∗∗∗ (.01)∗∗ (.009)[.847] [.847] [.85] [.845] [.83]

Employment −.999 −1.02 −1.001 −1.031 −.0510–36 months (.073)∗∗∗ (.071)∗∗∗ (.1)∗∗∗ (.081)∗∗∗ (.083)

[2.185] [2.185] [2.194] [2.183] [2.908]Employment .07 .074 .047 .09 −.09

37–120 months (.111) (.109) (.155) (.124) (.111)[5.136] [5.136] [5.202] [5.107] [4.889]

Earnings −2.739 −2.998 −3.156 −3.044 −.8210–36 months (.335)∗∗∗ (.304)∗∗∗ (.429)∗∗∗ (.348)∗∗∗ (.321)∗∗

[10.159] [10.159] [10.223] [10.096] [12.155]Earnings .852 .545 .195 .522 −.862

37–120 months (.563) (.522) (.74) (.598) (.518)∗[20.759] [20.759] [21.014] [20.658] [19.39]

Observations 6,180 6,180 3,045 4,757 6,150

Source: ASSD, own calculations. Sample: PL-eligible women giving birth to their first child in June 1–30(12 months PL) or July 1–30 (24 months PL) in the year 1990.

Notes: This table reports the July 1990 parameter estimate in a linear regression/linear probability modelcomparing postbirth labor market outcomes of mothers giving birth to their first child in June and July 1990.Standard error in parentheses; mean of dependent variable in brackets. Employment and earnings are set tozero for women who do not hold a job. Zeros are included in all our analyses. ∗ (∗∗ ,∗∗∗) denote significance atthe 10% (5%,1%) level respectively. Inference based on Huber–White standard errors. Base: July (24 monthsPL) vs. June (12 months PL). Controls: adds controls (Table II). Half-window: June 16–July 15. Anticipation:June 1–23 and July 8–30. Placebo: June 1987 (12 months PL) vs. July 1987 (12 months PL).

after giving birth to their first in July 1990 (row (1)) and thedifference is quantitatively large: An additional 10 of 100 mothershave not returned to work within three years after the 1990birth. This difference in return to work shrinks over time but asignificant three-percentage point difference still remains evenafter ten years (row (2)). Interestingly, although treated motherswork about one month per year less during the first three yearsafter giving birth (row (3)), there are no long-run employmentdifferences between treated and controls. During months 37–120after birth, average employment is the same for the two groups(row (4)). A similar finding obtains for earnings per calendarmonth. Treated mothers earn about three euros less from workingon the average day of the three first postbirth years (row (5));


there is even a positive albeit statistically insignificant earningsdifferential between treated and control mothers four to tenyears after giving birth (months 37–120, row (6)). Thus, althoughthe 1990 reform slightly reduced the number of women everreturning to work, staying out of work for an extended period doesnot appear to harm employment and earnings of treated mothers.

IV.C. Heterogeneous Responses: Income and Occupation

Austrian PL provisions offer job protection and a financialtransfer during the time a mother stays off work. Although bothtypes of policies reduce the costs of having children, they targetquite different dimensions of these costs. Cash transfers help ex-tend the time a mother can stay home with her baby without run-ning into financial distress. This is more likely to help low-incomeparents. In contrast, job protection extends the time a mother canspend with her baby without losing her job. This is more likely tohelp career-oriented women, for whom job loss may be very costly.

Table VI explores whether extending PL duration affectshigh- and low-wage women differently. A mother is considered“Hi Wage” if daily earnings on the job held exactly one year priorto giving birth (prebirth job) exceeds the median of daily prebirthearnings (37.12 euros per day worked); and a mother is considered“Lo Wage” otherwise. The flat rate transfer of 340 euros translatesinto a low replacement rate for high-wage women and a high re-placement rate for low-wage women. Moreover, taking occupationas a proxy for the extent of job-specific skills, we also investigatewhether the responses for women holding a white-collar occupa-tion one year prior to birth (column (4)) were different from theresponses of women holding a blue-collar job (column (5)).24 Forcomparison purposes, column (1) repeats the baseline result (col-umn (1) of Tables IV and V).25

Results indicate that the 1990 PL reform led to a significantincrease in short-run fertility for both high- and low-wage women(Table VI, columns (2) and (3)). Excess short-run fertility amounts

24. Women who did not hold a job one year prior to giving birth to the 1990child are allocated to the low-wage/blue-collar categories. Results remain qualita-tively unchanged if we exclude nonemployed women.

25. Clearly, such rough sample splits along one dimension are likely to becontaminated by imbalance along other dimensions. For instance, 62% of high-wage women hold a white-collar occupation, whereas only 44% of all women holda white-collar occupation. Nevertheless, splitting the sample along these two di-mensions allows discussing the relevance of earnings replacement and value of jobprotection.


TABLE VIHETEROGENEOUS EFFECTS OF PL DURATION FOR THE CURRENT CHILD (1990 REFORM)

All Hi wage Lo wage Wt col Bl col

(A) FertilityAdditional birth .049 .036 .068 .055 .048

0–36 months (.012)∗∗∗ (.017)∗∗ (.017)∗∗∗ (.018)∗∗∗ (.016)∗∗∗[.345] [.351] [.339] [.349] [.342]

Additional birth .035 .016 .054 .034 .0360–120 months (.012)∗∗∗ (.017) (.017)∗∗∗ (.018)∗ (.016)∗∗

[.617] [.616] [.618] [.611] [.622]Additional birth −.026 −.033 −.018 −.018 −.031

0–16 months (.006)∗∗∗ (.009)∗∗∗ (.009)∗ (.009)∗∗ (.009)∗∗∗[.066] [.06] [.071] [.058] [.072]

Additional birth .084 .08 .089 .095 .07817–28 months (.01)∗∗∗ (.014)∗∗∗ (.014)∗∗∗ (.015)∗∗∗ (.013)∗∗∗

[.193] [.203] [.183] [.206] [.183]Additional birth −.021 −.031 −.013 −.042 −.008

29–120 months (.012)∗ (.017)∗ (.017) (.018)∗∗ (.016)[.36] [.353] [.366] [.348] [.369]

(B) Labor market outcomesReturn to work −.11 −.103 −.124 −.137 −.094

0–36 months (.012)∗∗∗ (.017)∗∗∗ (.018)∗∗∗ (.018)∗∗∗ (.017)∗∗∗[.564] [.632] [.496] [.647] [.5]

Return to work −.027 −.028 −.029 −.039 −.0180–120 months (.009)∗∗∗ (.012)∗∗ (.014)∗∗ (.012)∗∗∗ (.013)

[.847] [.874] [.82] [.889] [.814]Employment −1.023 −1.186 −1.15 −1.054 −.556

0–36 months (.114)∗∗∗ (.101)∗∗∗ (.114)∗∗∗ (.102)∗∗∗ (.172)∗∗∗[2.594] [1.984] [2.659] [1.913] [1.505]

Employment .2 −.125 .071 .026 .23837–120 months (.173) (.162) (.171) (.163) (.286)

[5.88] [4.762] [5.95] [4.681] [3.92]Earnings −3.548 −2.7 −3.914 −2.347 −2.356

0–36 months (.56)∗∗∗ (.354)∗∗∗ (.564)∗∗∗ (.335)∗∗∗ (.748)∗∗∗[14.247] [7.183] [13.921] [7.454] [6.508]

Earnings 1.142 .311 .45 .895 −.40337–120 months (.927) (.64) (.923) (.614) (1.465)

[26.467] [16.139] [26.336] [16.183] [17.179]

Observations 6,180 3,087 3,093 2,705 3,475

Source. ASSD, own calculations. Sample covers women giving birth to their first child in June 1–30 (12months PL) or July 1–30 (24 months PL) in the year 1990.

Notes. This table reports the “July 1990” parameter estimate in linear regressions/linear probabilitymodels comparing postbirth labor market outcomes of mothers giving birth to their first child in June andJuly 1990. Standard error in parentheses; mean of dependent variable in brackets. Employment and earningsare set to zero for women who do not hold a job. Zeros are included in all our analyses. ∗ (∗∗ ,∗∗∗) denotesignificance at the 10% (5%,1%) level, respectively. Inference based on Huber–White standard errors. All:repeats column (2) of Table 4 and column (2) of Table 5 for comparison. Hi/lo wage: median splits for prebirthdaily income; Wt/bl col: splits by white- and blue-collar occupation; wage and occupation measured one yearprior to birth; women who are not employed one year prior to birth are allocated to the low-wage and blue-collarcategories.


to almost four children per 100 high-wage mothers and to almostseven children per 100 low-wage mothers (row (1)). This resultsuggests that taking advantage of automatic renewal is less at-tractive to high-wage women than to low-wage women. Long-runfertility effects disappear for women with high earnings power(1.6-percentage-point difference) but not for women whose pre-birth earnings power lies below the median (6.4-percentage-pointdifference). Rows (3)–(5) in Table VI assess the timing of fertility.High-wage women delay fertility more than low-wage women upto month 16 (when control women also have access to automaticrenewal, row (3)). From month 17 to 28 (when the treated haveaccess to automatic renewal but controls do not; row (4)), treatedhigh- and low-wage women display excess fertility of eight andnine children per 100 women, respectively. In the period follow-ing month 29, high-wage (but not low-wage) controls have sig-nificantly higher fertility (row (5)). In sum, excess fertility forlow-wage women results from not delaying initial fertility by thetreated and from not catching up by the controls after automaticrenewal has lapsed.

These differences in fertility timing are likely to be explainedby differences in work attachment between high-wage women(63% return to work within three years, row (6), number in brack-ets) and low-wage women (only 50% return to work within threeyears, row (6), number in brackets). Because returning to workbetween children induces a wider space between first birth andsecond birth, offering automatic renewal compresses the space be-tween children more strongly for the group with a larger ex antespace between births.

Interestingly, although there are significant differences infertility responses between high- and low-wage women, the PLreform affects employment and earnings of high- and low-wagewomen to a similar extent (Panel B in Table VI). The decrease inreturn-to-work probabilities is somewhat smaller for high-wagewomen than for low-wage women in the short run but almostidentical in the long run (rows (6) and (7)). The reduction inemployment is identical for both groups in the short run andin the long run (rows (8) and (9)). Short-run earnings reduc-tions are greater for high-wage women than for low-wage women(row (10)). However, because employment responses are nearlyidentical, differential earnings responses arguably reflect ex antedifferences in earnings power rather than differential earningsconsequences of extending PL duration. There are no significant


long-run earnings consequences of extended career interruptions(row (11)).

Turning to fertility results by occupation reveals that short-run and long-run fertility responses are quite similar for white-collar and blue-collar women (columns (4) and (5), rows (1) and(2)): three additional children within 10 years. Yet even though thelong-run result is similar, the time pattern of the responses differssomewhat between white- and blue-collar women (rows (3)–(5)).Both blue- and white-collar women delay second-child fertilityin the period, giving both treated and control women access toautomatic renewal (row (3)); both blue- and white-collar womeneligible for extended PL concentrate births of second children inthe period with access to automatic renewal (row (4)). Yet white-collar control women catch up to treated women more stronglythan blue-collar control women in the postrenewal period (row(5)). This pattern of results is, again, consistent with differentialpostbirth labor market attachment between white-collar women(65% return to job within three years, row (6)) and blue-collarwomen (50% return to job within three years, row (6)).

Although occupation does not appear to mediate fertility re-sponses of extended leave strongly, occupation is important for thelabor market consequences of extended PL (Panel B in Table VI).About 14 of 100 treated white-collar women do not return to workwithin three years because of extended PL. In contrast, only 9 of100 blue-collar women delay return to work in the short run (row(6)). Long-run return to work of blue-collar women is not affected,whereas almost 4 of 100 women in the white-collar group do notreturn to work within ten years (row (7)). Extended PL reducesemployment and earnings more strongly for white-collar womenthan for blue-collar women in the short run (rows (8) and (10)).However, in the long run PL-induced career interruptions are notharmful (rows (9) and (11)). In sum, the results suggest that la-bor market outcomes of white-collar women are more sensitive toextending PL.

We conclude that the finding of higher fertility responses forlow-wage women than for high-wage women suggests that cashtransfers (through their impact on replacement ratios) are im-portant determinants of fertility responses. Finding that thereare no differences in fertility responses between blue- and white-collar workers suggests that the job protection provisions are ofimportance for white-collar women. White-collar women have, onaverage, higher incomes than blue-collar women and, on the basis


of their lower average replacement ratios, they should also reactless strongly to the PL extension. It seems that lower replacementratios are compensated by the benefits of job protection. This inter-pretation is consistent with the idea that internal labor marketsand career concerns are more important for white-collar jobs butless relevant for blue-collar workers.26

V. EXTENDING PL DURATION FOR THE FUTURE CHILD

This section assesses the effect of extended leave on the futurechild (“future-child PL effect”).27 To identify this effect we comparethe June 1990 cohort (eligible for a one-year PL for the currentchild but for a two-year PL for the future child) to the June 1987cohort (one-year PL for the current child and one-year PL for anysecond child born within three years after the first birth).

The June 1990 to June 1987 contrast may be biased due tocohort effects and time trends. Hence Table VII presents a rangeof supplementary analyses that shed light on the plausibility ofthe key identifying assumption of identical ex ante fertility plansand labor market trajectories for two cohorts. Assessing the sen-sitivity of our results to time trends, we provide (i) a placeboestimate of the reform among PL-ineligible mothers (column (3)),(ii) estimates of a three-year postreform time trend that com-pares July 1993 mothers to July 1990 mothers (column (4)), and(iii) estimates of a two-year prereform time trend that comparesJune 1987 mothers to June 1985 mothers (column (5)).28 Moreover,

26. Our results also relate to the existing literature on the trade-off betweenfertility and labor supply. In contrast to our long-run results, Angrist and Evans(1998) find that U.S. women with two children worked less than women withjust one child in 1990. There are at least two reasons for the differences in ourresults. First, Angrist and Evans (1998) do not condition on time since birth. Theirfinding of a reduction in labor for the average mother could be consistent with atemporary reduction in labor supply in the short run but no reduction of laborsupply in the long run—the situation we document for Austria. Second, Austriaand the United States differ in terms of female labor force participation. In 1994,the earliest year with comparable OECD statistics, 65% of American working-agewomen participated in the labor market whereas only 59% of Austrian womendid. Because these participation differences presumably reflect differences in thespeed of postbirth labor market reentry, a second child is likely to crowd out moreemployment in the United States than in Austria. Thus, the fertility effects ofextended parental leave may come at higher long-run employment cost in countrieswith high postbirth labor market participation.

27. Note that, although the change in the PL system could in principle alsoaffect first-child, third-child fertility, and so forth, we confine our analysis to theanalysis of second-child fertility because for this parity the effects should be mostpronounced.

28. The prereform time trend cannot be three years because our ASSD extractstarts in 1985.


TABLE VIITHE EFFECT OF PL DURATION FOR THE FUTURE CHILD (1990 REFORM)

Base Controls Ineligible Posttrend Pretrend

(A) Short-run effects (0–36 months after birth)Additional birth .069 .068 −.019 −.006 .001

(.012)∗∗∗ (.012)∗∗∗ (.051) (.012) (.011)[.286] [.286] [.236] [.364] [.25]

Return to work −.002 −.003 −.053 .008 .018(.013) (.012) (.038) (.012) (.012)[.622] [.622] [.135] [.524] [.614]

Employment −.183 −.164 −.336 −.103 −.045(.084)∗∗ (.083)∗∗ (.216) (.058)∗ (.086)

[2.799] [2.799] [.583] [1.71] [2.909]Earnings −.181 −.229 .512 −.75 −.589

(.361) (.331) (1.927) (.282)∗∗∗ (.325)∗[11.68] [11.68] [9.031] [8.974] [11.849]

(B) Medium-run effects (37–72 months after birth)Additional birth −.019 −.014 −.072 −.011 .033

(.011)∗ (.011) (.047) (.01) (.011)∗∗∗[.21] [.21] [.182] [.179] [.205]

Return to work .028 .024 .011 .022 .005(.009)∗∗∗ (.01)∗∗ (.043) (.011)∗∗ (.009)[.158] [.158] [.156] [.227] [.144]

Employment −.172 −.191 −.492 .315 −.007(.123) (.122) (.397) (.117)∗∗∗ (.125)

[4.585] [4.585] [1.599] [4.77] [4.688]Earnings −.13 −.325 −.252 .441 .053

(.547) (.523) (2.285) (.524) (.498)[17.015] [17.015] [13.084] [18.654] [16.814]

Observations 5,977 5,977 274 6,406 5,892

Source: ASSD, own calculations. Sample covers eligible and ineligible women giving birth to their firstchild in June or July of the years listed in the notes.

Notes: This table reports the “After” parameter estimate in linear regressions/linear probability modelscomparing postbirth labor market outcomes of mothers giving birth to their first child in June or July ofvarious years. Standard error in parentheses; mean of dependent variable in brackets. Employment andearnings are set to zero for women who do not hold a job. Zeros are included in all our analyses. ∗(∗∗ ,∗∗∗)denote significance at the 10% (5%,1%) level, respectively. Inference based on Huber–White standard errors.Base: eligible, June 1990 (24 months PL for second child, 12 months PL for first child) and June 1987 (12months PL for first and second child). Controls: adds controls (Table II) to Base. Ineligible: ineligible withcontrols, June 1990 vs. June 1987. Posttrend: eligible with controls, June 1993 vs. July 1990. Pretrend: eligiblewith controls, June 1987 vs. June 1985.

Table VII distinguishes between months 0–36 after the first birth(where second-child duration differs) and months 37–72 after thefirst birth (where second-child duration is identical).29

29. Note that the inverse pattern of eligibility holds for the pre- and post-reform trend cohorts. Prereform cohorts are eligible for the same second-childPL duration during months 0–36 after the first birth, but PL duration differs


Results indicate that the future-child PL effect is quantita-tively important (Table VII). Short-run fertility is 7 percentagepoints higher for June 1990 mothers than for June 1987 mothers(Panel A of Table VII, row (1)). Adding prebirth characteristicsdoes not change this result. We do not find that PL-ineligibleJune 1990 women tend to give birth to more future children thanPL-ineligible June 1987 women (column (3)). We also do not finda high importance of time trends. Higher-order fertility is simi-lar between July 1993 and July 1990 mothers (column (4)) and isalso similar between between June 1987 and June 1985 mothers(column (5)).

Interestingly, extending leave for the future child does notappear to affect labor market outcomes to any great extent (rows(2)–(4) of Panel A in Table VII). Return to work and earnings do notdisplay statistically significant effects (rows (2) and (4)). Althoughwork experience is reduced significantly, estimates indicate thattreated mothers work 0.2 months per year less.30

Panel B in Table VII shows that the short-run fertility effectpersists in the medium run. Our results indicate that there isno significant catch-up of control mothers during months 36–72.Although June 1990 mothers give birth to slightly fewer secondchildren than June 1987 mothers, the effect is quite small (1.4children per 100 women) and not statistically significant. Fur-thermore, results on PL-ineligible women are insignificant. Thelast two columns of Panel B of Table VII show time-trend results.More precisely, these results measure time trends plus future-child differences in PL duration in the medium run. For instance,pretrend estimates compare June 1987 mothers who are coveredby a two-year leave in the medium run (months 36–72 cover the pe-riod from July 1990 to June 1993) and June 1985 mothers who arecovered by a one-year leave for the first two years and a two-yearleave for the third year (months 36–72 cover the period from July1988 to June 1991). Consistent with this pattern of PL eligibility,

during months 37–72 after the first birth. In the prereform time trend analysis,for instance, second children of June 1987 mothers are eligible for 24 months of PLduration in months 37–60 after the first birth, whereas second children of June1985 mothers are still only eligible for 12 months of PL duration. In months 61–72after the first birth, both second children of both cohorts are eligible for 24 monthsof PL duration.

30. Note that employment estimates could be spurious because there is asignificantly negative postreform trend in employment (column (3), Table VII).Moreover, the coefficients on labor market outcomes are very imprecise, so the dataare consistent with zero effects but also with large negative effects on employmentand earnings.


the future-child PL effect is 3 percentage points higher for theJune 1987 cohort than for the June 1985 cohort.31 Posttrend esti-mates capture the fact that second-child leave is reduced from 24months to 18 months for July 1993 mothers, whereas July 1990mothers still have access to a two-year leave. Point estimates arequantitatively consistent with the future-child effects estimatedabove but are not statistically significant.

Except for a small increase in return to work, we do not findlarge future-child PL effect on medium-run labor market out-comes.

What can we learn from the current-child and future-childeffects? Recall that the current-child estimates compare fami-lies with different benefits (in terms of transfers and time forcare) for the current child but identical benefits for the futurechild. Abstracting from automatic renewal, extending parentalleave should crowd out short-run postbirth labor market partici-pation but leave fertility decisions unaffected. In contrast, future-child estimates compare families with different benefits for thefuture child but identical benefits for the current child. Extendingparental leave should affect fertility decisions but not crowd outshort-run postbirth labor market participation.

Turning to results, we find that extending parental leave forthe current child reduces short-run postbirth work experience byone month, whereas the corresponding future-child effect is aboutone-fifth of a month. Thus, the pattern of labor market results isin line with the pattern of incentives. In contrast, whereas extend-ing parental leave for the future child boosts short-run fertility by7 percentage points, doing so for the current child also increasesshort-run fertility by 5 percentage points. Thus, fertility resultssuggest that access to automatic renewal is valuable; indeed al-most as valuable as extended leave for a future child.

VI. REDUCING PL DURATION

This section discusses the effects of the 1996 reduction ofPL. Results comparing mothers giving birth to their first childin July 1996 (eligible for eighteen months of leave) with mothers

31. The effect is about one-half of the short-run estimate in row (1), column(2), of Table VII. This lower importance of extended leave for a future child canprobably be explained by two facts. First, the prereform control group of June1985 mothers gets access to extended leave in the period 61–72 months afterbirth. Second, mothers might be less responsive to extended leave three to sixyears after birth than zero to three years after birth.


TABLE VIIITHE EFFECTS OF REDUCING PL DURATION FOR THE CURRENT CHILD (1996 REFORM):

JUNE 1996 (24 MONTHS PL) VS. JULY 1996 (18 MONTHS PL)


(A) FertilityAdditional birth −.003 −.001 −.025 .003 −.021

0–36 months (.012) (.012) (.017) (.014) (.012)∗[.321] [.321] [.331] [.309] [.349]

Additional birth .028 .028 .023 .022 −.0210–22 months (.009)∗∗∗ (.009)∗∗∗ (.013)∗ (.01)∗∗ (.009)∗∗

[.152] [.152] [.157] [.148] [.151]Additional birth −.03 −.029 −.032 −.028 .001

23–28 months (.008)∗∗∗ (.008)∗∗∗ (.011)∗∗∗ (.009)∗∗∗ (.008)[.103] [.103] [.109] [.098] [.122]

Additional birth .004 .005 −.013 .013 −.00329–36 months (.007) (.007) (.01) (.008)∗ (.007)

[.077] [.077] [.076] [.076] [.084]

(B) Labor market outcomesReturn to work .051 .053 .058 .047 .003

0–36 months (.012)∗∗∗ (.012)∗∗∗ (.017)∗∗∗ (.014)∗∗∗ (.012)[.661] [.661] [.66] [.663] [.536]

Employment .675 .684 .703 .676 .0570–36 months (.069)∗∗∗ (.067)∗∗∗ (.095)∗∗∗ (.076)∗∗∗ (.056)

[2.456] [2.456] [2.46] [2.487] [1.729]Earnings 2.65 2.697 2.295 3.045 −.267

0–36 months (.367)∗∗∗ (.321)∗∗∗ (.444)∗∗∗ (.371)∗∗∗ (.264)[12.302] [12.302] [12.148] [12.469] [9.135]

Source: ASSD, own calculations. Sample: PL-eligible women giving birth to their first child in June 1–30(24 months PL) or July 1–30 (18 months PL) in the year 1996.

Notes. This table reports the “July 1996” parameter estimate in linear regressions/linear probabilitymodels comparing outcomes of mothers giving birth to their first child in June or July 1996. Standard errorin parentheses; mean of dependent variable in brackets. Employment and earnings are set to zero for womenwho do not hold a job. Zeros are included in all our analyses. ∗ (∗∗ ,∗∗∗) denote significance at the 10% (5%,1%)level, respectively. Inference based on Huber–White standard errors. Base: July (18 months PL) vs. June (24months PL). Controls: adds controls (Table II). Half-window: June 16–July 15. Anticipation: June 1–23 andJuly 8–30. Placebo: June 1993 (24 months PL) vs. July 1993 (24 months PL).

giving birth to their first child in June 1996 (eligible for 24 monthsof leave) indicate, first, that the number of children born withinthree years is not affected by the partial reversal of the 1990 pol-icy change (Table VIII, row (1)). Second, although the number ofchildren is unaffected, the timing of second-child fertility is signif-icantly altered. There is excess future-child fertility of about 3%before month 22 (when both treated and control mothers have ac-cess to PL renewal) and a decrease of the same order of magnitudeduring months 23–28 (when the treated lose access to PL renewal;Table VIII, rows (2)–(4)). Reducing PL duration strongly affects


the timing of births but not the number of children being bornbecause, arguably, mothers could take advantage of PL renewalbefore and after the 1996 reform, whereas the 1990 reform repre-sents a switch from a system where PL renewal was not feasibleto a system where it become highly attractive.32

Third, reducing PL duration affects return to work, employ-ment, and earnings considerably. In the short run, 5 of 100 womenreturn to work within three years who would not with extendedleave (Table VIII, row (5)). Women on the 18-month leave alsowork on the average about 0.7 months more per year and earn3 euros more per day more than women with access to a two-yearPL (Table VIII, rows (6) and (7)). Notice that the six-month re-duction in PL duration affects return to work, employment, andearnings by about half as much (in absolute value) as the twelve-month extension of PL duration in 1990. Hence results for the1996 reform confirm that that PL duration for the current childhas a strong impact on short-run labor market outcomes.

VII. CONCLUSIONS

The focus of this paper is the relevance of the duration ofjob-protected, paid PL for higher-order fertility and labor marketoutcomes of working women. The empirical analysis is based on a1990 extension of PL duration from one year to two years and ona 1996 reduction of PL from two years to eighteen months.

We find that extending PL affects fertility via two channels.First, increasing leave for the current child opens up the possi-bility of renewing PL benefits without going back to work. Theresulting tighter spacing of births gives rise to both excess short-run fertility (5 additional children per 100 women within threeyears) and excess long-run fertility (3 additional children per 100women within ten years). Moreover, increasing leave for the fu-ture child reduces the cost of care for that child, inducing mothersto give birth to about 7 additional second children per 100 women.This means that extending job-protected paid PL with automaticrenewal from one year to two years induces mothers to give birthto about 12 additional children per 100 women. Regarding thelabor market consequences of extended leave, we find that most

32. We also investigate the effects of reducing PL duration for the future childby comparing mothers who give birth to a first child in June 1996 to mothers whogive birth to a first child in June 1993. Findings indicate that reduced leave on thefuture child is associated with a decrease in short-run fertility.


mothers exhaust the full duration of their leaves; that return towork is substantially delayed even after PL has been exhausted;and that prolonging leave leads to significant short-run reduc-tions in employment and earnings but only minor effects in thelong run. Fertility and labor market responses are heterogeneouswith respect to earnings and occupation on the prebirth job. Thisis consistent with both replacement rates and job protection me-diating the effects of extended leave on fertility and labor marketresponses. Finally, our findings indicate that the 1996 reductionof PL duration compresses the space between first and secondbirths, but does not have a significant effect on the number ofsecond children born within three years. Moreover, the labor mar-ket responses closely mirror those of the 1990 extension of PLduration.

Providing causal evidence on how Austrian policy changes af-fect fertility and labor market careers is interesting and importantfor the non-Austrian public. In many countries fertility levels havefallen strongly and the question of whether PL policies can helpto increase fertility is hotly debated. Our results show that suchpolicies can have a quite strong impact and that both transfersand job protection matter for fertility responses. Our analysis oflabor market effects addresses the issue of whether too generousPL rules might have a negative impact on mothers’ subsequentwork careers—an issue of paramount importance. We think theAustrian case is interesting in this respect because the 1990 PLreform was a move from a system of average generosity (by cur-rent OECD standards) to a system of high generosity. Although wedo find that the PL extension increases the proportion of womenwho never return to work, we do not find detrimental effects onemployment and earnings over an extended time horizon. Hencewe conclude that generous PL policies do not necessarily harmwomen’s long-run labor market outcomes.

FACULTY OF BUSINESS AND ECONOMICS, UNIVERSITY OF LAUSANNE, CEPR, IFAU,IZA, CESIFO, AND IEWINSTITUTE FOR EMPIRICAL ECONOMIC RESEARCH, UNIVERSITY OF ZURICH, CEPR, IZA,AND CESIFO

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